Archive for the ‘economy’ Category

I saw the following quote recently: ” What kind of person sees nothing wrong in cutting a teachers 50,000 salary by 20%, but doesn’t see anything wrong with a 3% tax increase on a millionaire.”

I would re-word this: “What kind of government sees nothing wrong in taking more and more money from small business and uses the emotional blackmail of threatening to cut the salaries of public employees, most famously teachers and police.”

This first quote is too simplistic a choice, and issues revolving around pay and taxes go much deeper than this. Governments must learn to live within a budget and can’t continue to take more and more. England thought they were faced with a similar choice between raising taxes or cutting pay. They decided the fairest thing was to raise taxes on the top tier of income. A 3% tax increase isn’t what we’re really talking about here. That would never be enough. How much is enough? 50% tax rate, 70%, 90%? They’ve all been tried. If we did today, what England did, we would have a top income tax rate of 70%. The median wage would be about $30,000. Unemployment among the under 25’s would be 40%. Only 10% would be allowed to go to college. Health care would be free and mostly unavailable. The government would become the partial or total owner of all big business in the country. This was what England looked like in the 1980’s after 30 years of high taxes and the central government running virtually everything. And the country still came to the edge of bankruptcy more than once. Emotional arguments like the one above will lead to poor choices. We think we are being “fair” and can make this type of economic system (redistribution of wealth) work when it has failed everywhere it has been tried. It leads to people having no motive to excel, and all wealth ending up under government control, when government is not and will never be a good steward of what it manages. We need to look at where we’re spending our money, not raising taxes.

All who are cheering our new healthcare reform ought to be studying the National Health Service in England. In particular they ought to be looking at one of the many bureaucractic offices set up to run the Health Service “fairly”. N.I.C.E. is the acronym for National Institute for Health and Clinical Excellence. In reality it is set up to determine such things as how many quality years a person has left. QALY (Quality Adjusted Life Years) puts you in your proper place in the rationing queue. If you are an older person, or if you have a condition which someone from N.I.C.E. determines as causing your quality of life to be less, your QALY score is lower, and you either wait longer for care, or you don’t get it at all. N.I.C.E. also determines such things as whether the NHS should offer certain treatments to anyone at all. If a treatment helps some people, but not enough people, it is taken off the schedule completely and no one gets it. Its not cost effective to use it for just a few. So now everyone’s worth is determined by their QALY score and the cost effectiveness of treating them. In fact the Brits call N.I.C.E. by other names such as “National Institute of Cost Effectiveness” and “Nazi Institute for Commoner Extermination”. The two men most instrumental in setting up N.I.C.E., Sir Michael Rawlings and Simon Stevens are both working with the U.S. government to determine the most efficient ways to run Medicare. Sir Michael Rawlings has had video conferences with our health bureaucrats, and Simon Stevens is now living in the U.S. and advising Medicare. In the Healthcare Reform package which just passed congress is a plan to save $500 billion from Medicare over 10 years. This is supposed to help finance the reform. Mr. Stevens, one of the architects of N.I.C.E., is architect of that part of healthcare reform. Nancy Pelosi hailed Healthcare Reform as being a historical landmark like Medicare. Medicare looks like it will soon be a plan senior citizens will wish they could escape. Although the quote was frequently thrown at us that Europe has better health statistics than we do, England does not. England’s cancer survival rates trail ours by 10-20%, and so do their cardiovascular survival rates. That is despite Britain having had universal healthcare for 60 years. As my own father used to say, “Everything costs something.” Nothing is free. If we want to give free health insurance to people who by choice do not work full time, and have the taxpayers cover it, something else has to give. I just can’t champion Medicare when I paid into it for 40 years of my working life and now can’t find a doctor who will see Medicare patients because of its abysmal reimbursement to doctors. Our new healthcare reform model is mirroring the British model, which has been a complete failure. Wake up America, and keep your sense of urgency until November when we have another chance to elect a new congress and do healthcare reform right.

The first 100 days reveals the national dive into the socialist pool. I have been through this and I know how it will turn out. I lived in England in the eighties and early nineties. It was a time of high prices, high taxes, high unemployment and a nearly bankrupt economy on every level. Even the most basic government services were in desperate straits. Unemployment among the under 30s was 40%. The National Health Service all but gave up on those over 65. What we in America would consider basic emergency care was unavailable even in medium size cities. The Emergency rooms were there, but so understaffed that people routinely died who should have received care. As they would say in England, “we have equal access to waiting queues, not care” That was just the health service. Other services were in equally dire situations. The populist crowd wanted government to run business so it would be more fair–whatever that means. However, government just isn’t good at business. Social engineering has consequences for the economy when it gets too ambitious, and eventually the engineers kill the golden goose.

During the great depression a lot of legislation was created which provided government oversight for banks, Wall street, the insurance industry, employee benefits etc. It provided balance. Government was watching the capitalist system and preventing excesses from ruining the economy. However, no one was watching the government, whether it was over interfering, or not doing its job at all. Rather than make the government into a better watchdog, Mr. Obama now seems to want the government to just take over all these things outright. This little old grandma is wondering, who will provide oversight of the government to prevent its excesses from ruining the economy? Its just growing into a huge, bungling behemoth. Instead of a watchdog protecting the henhouse from the fox, we just put the fox in charge of the henhouse, and there is no longer anyone able to be in charge of the fox.

Lately it seems I’ve been hearing more and more about the idea of spreading the wealth. More and more people are complaining that there is too great a disparity in this country between the top “quintile” (20%) and the bottom “quintile”. I wondered if there is anything more to this argument than fairness, and the reflex reaction that it must somehow be wrong that the top 20% of people in this country control over half of the wealth. I read and read. While I haven’t yet reached a conclusion, I found out a whole lot of interesting things.

There is an actual measurement called Gini, which is an indicator of the wealth disparity within a country. If a country has a high Gini, the top quintile owns a larger share of the wealth than if the country has a low Gini. The countries with the highest Gini’s in the world change every year, but usually are poor, third-world countries. This would tend to favor the argument that a larger wealth disparity creates a poor country, or keeps it poor.

However, as I read and read about the various countries on the Gini scale, I found out a lot of other interesting things. Among the countries that have a very low Gini (meaning they are “good” and share their wealth more equitably), they are about equally divided among rich and poor countries. The Scandinavian countries are quite wealthy, but other countries with similar Gini scores include Ethiopia and Pakistan. Clearly some other things must be operating here. Gini alone doesn’t create wealth.

Countries I would expect to have a low Gini score would be countries which have had communism for 2 or more generations. I was surprised to find out their Gini scores were higher than ours (Russia and China). Some of the old Soviet satellites had low Gini scores, but remain very poor, i.e., Slovakia.

In a country with a low Gini (remember, this is good and means more equitable sharing of the wealth), you may have a very high cost of living—or not. You may have a very high Gross Domestic Product (GDP) per capita—or not. We have a higher GDP per capita compared to Sweden and Denmark, while their Gini score is lower than ours. One thing you will likely have with a low Gini score is much higher taxes and a lot more government intervention into people’s personal finance i.e., the Scandinavian countries. After all, the top quintile isn’t likely to give away its wealth to the lower quintiles voluntarily, so the government must coerce it to do so with its tax laws. I wondered if the high tax rate on the wealthy and the sharing of the wealth would increase growth. After all, sharing the wealth is supposed to put more consumer spending into the economy. However, while some of the more equitable (low Gini) economies have higher growth rates than ours, most do not. Denmark has a very low growth rate right now. Interestingly enough, in those wealthier economies which have established a more equitable distribution of wealth, the birthrate has plummeted, and now the country is in deep trouble as it tries to provide social services for an aging population which isn’t producing as much wealth.

I wondered if there is a cut-off on how much you can tax the top quintile. I looked at the top hundred wealthiest people in the world, and they are generally owners of big business. People who want to spread the wealth around tend to see big business as the enemy, yet it truly is the goose that lays the golden egg in terms of producing wealth and jobs for the country. We don’t want to kill our golden goose for spite. Yet, if we take money from the “rich” that would have been used for more business creation and gave it to people who would buy more consumer goods, which is better for the country, for how long, and where is the tipping point? Kind of important to know, I would think.

Two points in closing. As the mom of adult kids, I can see the envy of an eighth grader toward her high school senior sibling, who through hard work and a couple of awards managed to amass several thousand dollars to be used toward college. The eighth grader would love to have some of that money for a new laptop. The eighth grader isn’t currently able to earn or save any such amount of money. What would be the wisdom of taking some of the senior’s college money and giving it to the eighth grader to be fair? I don’t know. You answer that one.

The second thought is that the countries with the highest Gini, where the wealth is spread around pretty well, the standard of living remains high and the government provides a pretty wide and strong safety net, the suicide rates are among the highest in the world. Spreading the wealth doesn’t answer that question either.